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FROM THE 41ST FLOOR CONFERENCE ROOM AT THE TOP OF AMERICAN INTERNATIONAL Group headquarters near Wall Street, the morning fog is lifting over the East River bridges, bringing Manhattan and Brooklyn into full view. Robert Benmosche’s vision extends a good deal further.

In his three years at the helm of the giant insurer — dubbed “the most hated company in America”after its near-collapse triggered an unprecedented government bailout in 2008 — Benmosche has orchestrated arguably the greatest turnaround in corporate history. With a take-no-prisoners leadership style, he restored morale at the beleaguered company and convinced employees, clients and the government that AIG had a future. Benmosche then sold off more than two dozen businesses, shrinking AIG to roughly two thirds of its precrisis size and raising enough money to repay every penny of the $182.3 billion in federal aid it received and deliver $15.1 billion in profits to taxpayers. Today the company’s core life and general insurance businesses are operating profitably for the first time in years, and AIG looks set to return fully to the private sector within months.


Now Benmosche is looking to grow AIG again. His executives are employing the latest data and analytics to boost profits at the group’s property/casualty insurance arm and devising new products to help its life insurance and retirement services subsidiaries prosper in spite of today’s record-low interest rates. AIG’s transformation has already seized the attention of investors, who have made it the second most valuable insurer in the world behind China Life Insurance Co., and Benmosche is confident that the company will soon regain its longtime perch at the top of the industry.

“In another three years we will again be the largest insurance company in the world by market cap,” he tells Institutional Investor in a recent interview at his offices, surrounded by Chinese ceramics, statues and paintings that pay homage to AIG’s birth in Shanghai almost a century ago.

Less clear is whether Benmosche himself will be around to celebrate. Cancer treatment has melted pounds from his 6-foot-4 frame, turned his complexion florid and forced him to grow a beard because rashes have left his face too sensitive to shave. He declines to reveal what type of cancer he has because he doesn’t want the media speculating about how much time he has left. “It is a very aggressive cancer,” says the 68-year-old Benmosche (pronounced BEN-moh-SHAY), who disclosed his condition in October 2010 when the illness was first detected. “I’m not going to be cured. I know that the treatment will eventually stop working.”

Illness hasn’t dented his energy, though. With his booming baritone voice and outsize personality, Benmosche sucks up most of the oxygen in a room. He still jogs 15 miles a week and continues to run AIG at a forced-march pace. His turnaround has allowed the government to reduce its holding in the company from 92 percent after the bailout to 16 percent, and the Treasury Department is expected to sell its remaining stake by early 2013. AIG’s swagger is back. The group’s p/c and life subsidiaries, Chartis and SunAmerica Financial Group, have returned to the black on an operating basis and will be rebranded as AIG and AIG Life and Retirement this month.

“Management has been great for the company, Treasury and the taxpayer,” says Cliff Gallant, an insurance analyst at Keefe, Bruyette & Woods. “AIG is clearly on a sound footing today and making profits, and that’s something few people would have believed possible four years ago.”

AIG underscored its rebound by reporting strong third-­quarter earnings early this month. The company posted net income of $1.9 billion in the period, compared with a loss of $3.8 billion in the 2011 quarter. The earlier results were depressed by valuation losses of $3.2 billion on AIG’s minority stake in AIA Group, the Asian life insurer it floated two years ago to finance its recovery, and on its interest in Maiden Lane III, a Federal Reserve Bank of New York vehicle created during the bailout to hold some of the toxic mortgage assets that had crippled AIG. For the first nine months of 2012, the company earned $7.6 billion, compared with a loss of $272 million a year earlier.

Lower catastrophe losses helped boost profits in the first three quarters, but it’s unclear whether that will continue in the wake of claims related to Hurricane Sandy. AIG didn’t announce its financial results from its headquarters because that building, along with four other Lower Manhattan properties it uses, was damaged by floodwaters from Sandy and remained shut one week after the storm.

AIG is a much slimmer outfit than it was before the crisis. The company has cut its balance sheet nearly in half, to $551 billion from $1.05 trillion, and reduced staffing to 62,000 from 96,000. It has tumbled to fifth place from first among the world’s general insurers, with $39 billion in premiums in 2011, far behind global leader Allianz’s €101 billion ($129 billion). Its life business, reduced by the $15.5 billion sale of American Life Insurance Co. (Alico) to MetLife, ranks outside the top 25 in the U.S. by premiums.

Adding to the challenge, AIG’s core businesses are mediocre performers, even if they have returned to profitability. Chartis’s combined ratio, which measures costs and claims as a proportion of premiums, stood at 102.3 percent in the first half of 2012. A number above 100 percent indicates that a company isn’t making money from insurance underwriting and has to rely on investment income for profits. Many peers did much better, with ACE at 88.9 percent, Chubb Corp. at 92.0 percent and Travelers Cos. at 96.3 percent. AIG’s p/c operation posted a modest 6 percent return on equity in the first half, well below ACE (12.6 percent), Chubb (11.8 percent) and Travelers (10.5 percent). It remains to be seen whether AIG’s life insurance unit, SunAmerica, can prosper in today’s prolonged low-interest-rate environment. “They have a lot of work to do,” says Josh Stirling, a senior analyst at Sanford C. Bernstein & Co.

Yet today’s difficulties pale in comparison with the existential crisis the company faced just a few years ago. AIG ran up record losses of $116.4 billion in the two years ended December 31, 2009. The giant insurer saw the departure of three CEOs and scores of other senior executives in the space of 14 months. AIG became a corporate pariah, its name a byword for corporate malfeasance. “We were vilified in the media and in comments coming out of Washington,” says Benmosche. “Employees had their children bullied at school.”

Benmosche, a former chairman and CEO of MetLife, was lured out of retirement to take over at AIG and stopped the rot with his blunt and aggressive leadership style. He recruited a number of senior executives to spearhead the turnaround, including Peter Hancock, CEO of Chartis and the likely candidate to succeed Benmosche at the helm of AIG.

Hancock, a derivatives specialist with no prior experience in insurance, has reorganized Chartis from a sprawling collection of fiefdoms in more than 90 countries into two major units — global commercial and global consumer — that are using technology and data analytics to tailor insurance policies for multinational clients and introduce successful retail products to new markets around the globe. “Scale is not an objective for us — we have it already,” Hancock tells II. “Our strategies are very much focused on growing the value of the company, not the volume of its transactions.” Hancock is counting on emerging markets like Brazil, China, Indonesia, Mexico and Turkey to drive future profits. AIG is the largest U.S. insurer in China and currently ranks No. 10 overall in Turkey, No. 11 in Mexico and No. 13 in Indonesia.

Meanwhile, SunAmerica, which focuses entirely on the U.S. market, has recorded six consecutive quarters of positive net flows. It has reestablished distribution platforms through brokerages that abandoned the firm during the crisis, and it is picking up market share in variable annuities, where its presence used to be negligible.

All these initiatives have helped AIG’s share price soar by 41 percent since the beginning of the year, to $32.68 early this month. Even at that level AIG trades at just 0.6 times book value, compared with 0.90 for Allianz, 1.03 for ACE, 1.07 for Travelers and 1.34 for Chubb. AIG boasts $105.53 billion in shareholder equity because of government infusions, the proceeds of asset sales and tax-loss carryforwards, compared with $62.7 billion for Allianz.

Bruce Berkowitz, founder and chief investment officer of Miami-based Fairholme Capital Management, was an early investor in postbailout AIG, and his flagship hedge fund, Fairholme Fund, now holds a 1.96 percent stake worth $1.2 billion. “I bought them because they were cheap. And their major businesses were intact,” says Berkowitz. He predicts the share price will rise to $70 next year as the government exits the company and Benmosche’s team continues to bolster the bottom line. “The best is just ahead,” he says.

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